Proceedings of the Standing Senate Committee on
Aboriginal Peoples
Issue 4 - Evidence - March 4, 2014
OTTAWA, Tuesday, March 4, 2014
The Standing Senate Committee on Aboriginal Peoples met this day at 9:40 a.m. to study the challenges relating to First Nations infrastructure on reserves.
[English]
Marcy Zlotnick, Clerk of the Committee: Good morning, senators. As clerk of the committee, it is my duty to inform you of the unavoidable absence of both the chair and the deputy chair and to preside over the election of an acting chair. I'm ready to receive nominations to that effect.
Senator Moore: Madam Clerk, in the absence of the chair and the deputy chair, I would like to nominate Senator Scott Tannas to serve as chair of our committee today.
Ms. Zlotnick: Thank you. It is moved by Senator Moore that Senator Scott Tannas be appointed acting chair.
Is it your pleasure, honourable senators, to adopt the motion?
Hon. Senators: Agreed.
Ms. Zlotnick: I declare the motion carried and invite Senator Tannas to take the chair.
Senator Scott Tannas (Acting Chair) in the chair.
The Acting Chair: Thank you. Good morning. I'd like to welcome all honourable senators and members of the public who are watching this meeting of the Standing Senate Committee on Aboriginal Peoples, either here in the room or via CPAC or the Web.
I am Scott Tannas from Alberta, acting chair of the committee. The mandate of this committee is to examine legislation and matters relating to the Aboriginal peoples of Canada generally. Most recently, we have been holding briefings where witnesses have provided general background information on the broad question of financing infrastructure on reserves, which could relate to capital projects, schools and housing, among other things.
Today, our focus will be on financing options for First Nations. This morning we will hear from two organizations: the Royal Bank and BMO Financial Group.
Before proceeding to testimony, I would like to go around the table and ask the members of the committee to introduce themselves.
Senator Moore: Wilfred Moore, senator from Nova Scotia.
Senator Watt: Charlie Watt from Nunavik.
Senator Sibbeston: Nick Sibbeston from the Northwest Territories.
Senator Ngo: Senator Ngo from Ontario.
Senator Meredith: Don Meredith, Ontario.
Senator Raine: Nancy Greene Raine from British Columbia.
Senator Beyak: Senator Lynn Beyak, Ontario.
Senator Wallace: John Wallace from New Brunswick.
The Acting Chair: Thank you. Gentlemen, the floor is yours. Who is speaking first?
Harry Willmot, Senior Manager, Aboriginal Market Development, RBC Royal Bank: Good morning, everybody. My name is Harry Willmot. I'm the senior manager for Aboriginal market development for RBC Financial Group. I am truly honoured to be here today to share some of my experiences. I am a long-term banker, almost 40 years in the industry now. I've been working with RBC in this particular market since 1989. I've had the privilege of going from coast to coast to coast. I've been to probably well over 100 reserves, many of them many times, and I am here to share some of my experiences. It's a challenge at times when you think of some of the things you see, and housing is something that's geared to RBC's heart.
I think what I should do is maybe share a story with you. RBC opened its first full-service branch on-reserve, about 20, 21 years ago now, in Oshweken Six Nations in Ontario. We were approached by Chief Montour after we had opened the branch up, and he said, ``Harry, why can't I get a mortgage?'' He said, ``If I lived across the street, off the reserve, I could get a mortgage, but because I'm on the reserve, I can't.'' As some of you may know, because of section 89 of the Indian Act, financial institutions cannot take collateral on-reserve. We explained to the chief our mortgage programs and why we couldn't apply this particular product. He said, ``If you can't take a mortgage on-reserve, then would you accept our guarantee?'' We thought about that for a while. In 1996, we introduced a program called our On- Reserve Housing Loan Program — and I did distribute a package on that — where the First Nation, in lieu of our being able to take a mortgage, would step in and provide us with a guarantee.
Today we have approximately 85 First Nations across the country that have adopted this program. We have approximately $120 million out in this particular program as well. It's a great success. The bank continues to give us opportunities to grow this portfolio. I can tell you that we've never called upon our guarantee. I don't pretend to think there aren't delinquencies or slow payments, but it's a true partnership. RBC takes the responsibility of qualifying the individuals the same way we would qualify somebody living off-reserve. The First Nation steps in with their guarantee.
It's been a great program, and it's not to take away from the other programs that are currently being used. I'm not sure what you know or don't know, but, currently, if you're on-reserve, CMHC products are probably the key components to building homes — section 95 for social housing and section 10 for home ownership. There's also the First Nations Market Housing Fund, which has recently been introduced, and some communities even have their own programs that they distribute.
When I sit down with chief and council and talk about housing, how we accelerate housing in their communities, it's very easy to walk through our programs and all the others and sit down with council and build a long-term plan as to what we can do to resolve the housing crisis across the country. There is lots more to be done, but at the end of the day, we feel that we're doing our very best to try to mitigate the risk but at the same time accelerate the construction of homes.
There's one more thing I'd like to say too because, as the senator mentioned, infrastructure is really important. You can't build homes without infrastructure. RBC has been quite successful over the years in building current infrastructure — water and sewer treatment plants, roads, bringing power into the communities, schools, hospice health centres. This is the infrastructure that is needed in the community, and we play a major role in financing that infrastructure as well.
I'm a little long-winded, so I could talk forever. However, I recognize that my colleague Mr. Cameron has some comments to make too, so I'll leave that to him.
The Acting Chair: Thank you, Mr. Willmot. I must apologize, gentlemen, for not properly introducing you to the senators here. We just heard from Harry Willmot, who is Senior Manager of Aboriginal Market Development for Royal Bank, and next we'll hear from Jason Cameron, Director, Aboriginal Banking, Ontario Regional Division at BMO.
Then once we've heard from you, Mr. Cameron, we'll turn it over for questions from the senators and hopefully get a good discussion going.
Jason M. Cameron, Director, Aboriginal Banking, Ontario Regional Division, BMO Financial Group: Thank you, Mr. Chairman. Perhaps I could start off by giving a little bit of background on myself. I'm a member of the Madawaska Malaseet First Nation, outside of Edmundston, New Brunswick. I too have been with the bank for a long time. Not as long as Mr. Willmot, but I've been with BMO for 18 years in various lines of business, retail and commercial, and have been in our Aboriginal banking unit for a little over seven years. I have exposure to commercial financing, Aboriginal banking and retail banking, so I have a vast network of general banking.
I'd like to stick to some of my remarks, if it pleases the committee, just to ensure the message is there; and then open up to any general questions that I would be happy to answer.
On behalf of BMO Financial Group, I'm pleased to join today's discussion on challenges relating to First Nations infrastructure on reserves and, more specifically, to discuss the On-Reserve Housing Loan Program. BMO Financial Group's Aboriginal banking unit was created in 1992 to serve the unique banking and financing needs of First Nation communities. Over the past 20-plus years, with a national focus on regional representation across the country, we have successfully opened the bank's first on-reserve branch within Akwesasne's traditional territory in 1993. BMO's now pleased to have 14 on-reserve branches and community banking outlets across the country. We have been successful in creating the first On-Reserve Housing Loan Program. We have become the first and only major financial institution involved in the First Nations Market Housing Fund. We've been successful in developing a lending directive that clearly outlines how to get beyond the barriers of the Indian Act with regard to lending, in particular with infrastructure loans. We continue to provide unique and innovative financing products to Aboriginal communities.
At BMO Financial Group, we've been providing infrastructure financing to First Nation communities for over 20 years for various projects such as education and training centres, administration buildings, emergency and social services facilities, sports and recreation facilities, and road and bridge projects. Recent examples where BMO assisted include two significant infrastructure projects: a $60-million-plus water treatment facility and a health services building that includes a dialysis clinic on-reserve.
As the bank understands the importance of housing as part of a First Nation's infrastructure, BMO developed two programs specifically dedicated to on-reserve housing: our On-Reserve Housing Loan Program and our On-Reserve Home Renovation Loan Program. Together, they provide innovative on-reserve housing financing alternatives without government involvement. They're designed to reflect the specific requirements of the First Nation and provide financing for the construction, purchase and/or renovation of single family homes on-reserve. These programs help to provide loans that enable the purchase of property, the construction of property and/or the renovation of property. To be eligible for the program, the property must be a single family home on land held under a certificate of possession or title on-reserve. The lot must be serviced by roads, hydro, water and septic system.
We provide loans to borrowers who are qualified members of the First Nation and meet the bank's usual credit requirements. To determine the amount of the loan, we would consider the maximum individual limits that are set by the First Nation and, obviously, the borrower's ability to repay. One feature of our loan is that we require a minimum down payment of 5 per cent of the total project cost or purchase price. Other features of our on-reserve loan program include prepayment privileges, where any amount can be prepaid at any time without penalty; a maximum amortization of up to 25 years; and term periods ranging between one and five years.
Instead of a traditional mortgage or charge over the property, as Mr. Willmot indicated, we work with the First Nation's chief and council, who would provide a guarantee with supporting band council resolution to support each loan. In most cases, the homeowner would assign the right or title to their certificate of possession back to the First Nation until the loan is repaid.
With respect to our renovation loan program, the features are very similar to our housing loan program, except the loans range between $5,000 and $25,000; we do not require a down payment; and we lend at our BMO fixed personal lending rates. At BMO we work very closely with the housing department or housing authority, including providing ongoing reporting on the housing portfolio. Currently, BMO has 73 programs in place with over $90 million in housing loans across Canada.
Mr. Chair, BMO's strong 20-year legacy of dedicated service to Aboriginal communities has informed the design of both our On-Reserve Housing Loan Program and our On-Reserve Home Renovation Loan Program. We are proud of our deep relationships with First Nation communities across Canada, and we look forward to continuing to provide a high quality of service to our customers.
On behalf of BMO, I'm pleased to be here today, and I would be happy to answer any questions you may have. Thank you.
The Acting Chair: Thank you very much, Mr. Cameron and Mr. Willmot.
Senator Meredith: Thank you, gentlemen, for your presentations. Mr. Willmot, thank you for sharing that story with respect to those who desire to have homes on First Nations. I'm delighted that RBC has taken the lead on this, as well as Mr. Cameron and BMO.
I was looking at your rate sheets. In terms of the interest rate charged to First Nations people, is that the standard rate applied right across Canada, or is there a different interest rate charged to them?
Mr. Willmot: No, they are standard posted rates. In fact, we're even competitive if we need to be on those rates. The same rates offered to you living off-reserve apply to our community members on-reserve.
Senator Meredith: You talked about the infrastructure that you bring, as we're doing our study on infrastructure on reserves and First Nations, and you talked about financing roads, hospitals and schools. Can you elaborate on how that is formulated? Does the band and council say they need to bring a road in? Mr. Cameron, feel free to comment on that as well.
We understand that that has been problematic for First Nations with respect to roads and other infrastructure that they need. You talk about housing and renovation loans that you've given out and the fact that sometimes these homes are in disrepair because of improper infrastructure and coding and so forth. I would love to have you elaborate on that for me.
Mr. Willmot: Banking is relationship-driven. I've been doing this for quite some time. We at RBC, and I assume my colleague is the same, sit down with our clients on a regular basis and map out chief and council's vision for the future. Often it includes building a new school, upgrading a water sewer treatment plant or putting in a new subdivision. Our goal is to work with the client day in and day out as they progress to build these infrastructures. It's a partnership. We work in tandem with our partners at the Department of Indian Affairs.
There is a major capital plan in place, which we get a chance to review on a regular basis, that assigns resources to build schools or upgrade water sewer treatment plants or bring whatever infrastructure is required to the community. We sit down and find revenue streams with the client that we can tap into and, in turn, work with our partners at the federal government to build these infrastructures. We have been doing this for quite some time. In all fairness, it's a matter of understanding the client's needs and finding the proper resources to build these structures to advance forward.
Are they complicated? They can be, depending on where they are, what revenues have been identified to advance some of these projects and what time of year it is. In the remote North, you've only got a short window of time to bring in the resources and supplies you need to build those homes or schools over the ice roads. A lot of planning takes place.
Our role is to monitor the financing of that and to move those projects forward. I don't know what else to say about that. That's what we've been doing for the last 20 to 30 years.
Senator Meredith: With respect to codes, do you have any influence? Do you stipulate in your financing agreements the type of contractors brought in to build these infrastructures? Obviously, at the end of the day, there is collateral against this particular building or there's payment for that. Do you have any influence over who comes in, given the fact that there's been an absence of codes and regulations on First Nation reserves?
Mr. Willmot: Are we talking about housing?
Senator Meredith: Yes, for housing or any building, for that matter.
Mr. Willmot: We insist that the minimum standards be applied, and the minimum standards for housing are through CMHC. Each province has their standards, but those are the minimums we require. Lots of training is going on for First Nations to bring that capacity and the inspectors up to date. Those building codes need to be followed and adhered to.
Resources are available. I can speak to Ontario specifically, primarily where my market is. We work hand-in-hand with the Ontario First Nations Technical Services Corporation, which does training for water maintenance and water supplies. They do housing inspections and that type of thing. It's truly a partnership. It's a collaboration of a variety of initiatives that come together to build these homes. The minimum standards that apply in Ontario are the ones that we adhere to.
Mr. Cameron: To extend a little bit upon what Mr. Willmot has said, because BMO and RBC operate in the same manner, of course, when we look at the infrastructure for a housing development, such as the roads and the water and sewer and power, the first step is obviously understanding the capital plan and their strategic plan and sitting down with the community and the related partners, with the province and/or the federal government, to determine the size of the project, what's appropriate and what the logistics are and some timing. There are some challenges with access. We develop a plan and then determine from that how much capital is required to finance this and what the potential cash flows are that may come. Is this going to be a rental unit subdivision or homes that will be built by the First Nation and then sold to the members? We work out that plan. To Mr. Willmot's point, it's about bringing in the partners on a collaborative basis to determine where the bank can assist and what the First Nation's needs are.
Specific to your question around quality and standards, when it comes to our housing loan programs or any construction of any homes on-reserve, we work with the First Nation and the housing department to determine the minimum standards. In a lot of cases, First Nation communities have standards above that, and we work in partnership with them to determine what those are. We customize our housing loan programs for those members that are buying them that are specific to the community's needs, not just with the loan amounts but also the minimum construction requirements. Do they get pre-screened by the First Nation housing authority or the housing department? How much participation do they assist with the banks through perhaps a construction process? Do they require fixed- price contracts on the construction? That all gets worked out in what I determine to be the plan from the beginning of the infrastructure piece all the way through until the end user ends up going into the home.
Mr. Willmot: On a larger project, if you're building something that is significant, we insist on a project monitor as well, a third party independent that will come in and monitor the project as the construction takes place.
Senator Raine: I appreciate the experience both of you have. I can see this is a relatively new field, mid-1990s to now, so you've got 30 years of experience in this field. Are the other major banks in Canada also offering on-reserve programs, or just BMO and RBC?
Mr. Willmot: It's just the two of us at this point in time. If this were the platform, I would encourage other financial institutions to do the same.
Senator Raine: Between the two of you, you currently serve 159 out of the 600 some odd plus First Nations in Canada, so obviously not every First Nation would qualify for programs such as this?
Mr. Willmot: That's true, but we're open to work with all our clients, all First Nation communities. You talked about qualifications. If for whatever reason they're not qualified, we'll work with them and help them build those resources and that capacity. That's basically a transfer of the knowledge and skill we have. Our key priority in the marketplace is the transfer of financial knowledge and skill, and it has served us well to be there for the client. I can't tell you how many times the client will pick up the phone and just give me a call with a question that he or she would perhaps be intimidated to share with someone else. We have a relationship with our client, so we've built that confidence, that comfort level, to engage us. Our goal is to be that financial advice and counsel to chief and council, not to make decisions for them but to provide them the tools and skills they need to make those key decisions.
Senator Raine: Are there First Nations across the country that are doing housing projects without involving financial institutions in the development?
Mr. Cameron: Again, I serve specifically the Ontario market, but my colleagues across the country share experiences. From my experience, some First Nations are still doing their allotted home construction with government funding. They may not have a separate on-reserve housing loan program or other alternative, but I think the shift is that they're looking at multiple solutions to service a different part of their, in this case, housing portfolio.
Mr. Willmot: Senator, I'm not aware of any.
Senator Raine: Obviously, with the increase in population on reserves and the housing shortage that we've been hearing about, the federal government's pot of money allocated for housing doesn't go far enough to catch up to the shortages, so involving financial institutions in sharing that is very important.
Can you explain to me and to our listeners how it works? How do you analyze whether or not the band would qualify to guarantee the housing loans that you are giving to the band members? I understand how you would qualify an individual person, which would be similar to any other client of the bank, but how do you qualify the First Nation? What kind of guaranteed revenue streams do they need to qualify for this? If both of you could answer that, that would be very helpful.
Mr. Cameron: I see two pieces of housing, the First Nation-owned housing and the individual members. Going specifically to your question on providing a guarantee to the individual members who might be applying, it's sort of the same process as if we were lending to the First Nation if they were acting as the builder or developer. We would look at the financial strength of the First Nation. This is a guarantee facility or a contingent liability facility, not a direct liability. Therefore, due diligence is a little bit different.
One thing I will say, though, is that in our experience in the now 73 communities, we have had one small loss. To Mr. Willmot's point, there are always arrears, but it has been a very successful portfolio. Our experience in the market has been strong. We can share stories with certain communities on what we've learned.
When we look at the due diligence of a First Nation community to look at a housing portfolio, we take into consideration the size of the portfolio. We take into consideration the average cost to build on the reserve. That's where it gets very customized to the First Nation. We have a bit of a template, but each program is specific to the First Nation, and that goes through with the due diligence process that we go through.
Mr. Willmot: There's a similar process from RBC's side. We look at the financial strength of the community and the political stability of the community as well. Some of the things I would look at myself are whether the community has established a proper housing authority. Has it been separated from chief and council? Does the housing authority stand on its own? What success do they have currently with their rent collections? If they are currently unable to collect their rents, then at the end of the day I don't know if a housing program is ready to be introduced into that community. We look at the waiting lists of the community. Some communities have hundreds of families waiting to get into the community.
These are all things we take into consideration as we review applying our program, this particular program or, for that matter, that community adopting the program. What policies are in place? We really do take a hard look at where they stand from a political and financial perspective.
Senator Raine: Thank you.
Senator Sibbeston: My question is about the clientele or group of First Nations people on-reserve that would want a mortgage. I presume the situation with most people on-reserve is that they would go into a house that is built or provided by the First Nation from the federal government.
Is there a group of people who are now seeking to simply build their own houses stand-alone, a whole house, or is there a combination of programs where the band or government would put in a certain amount of money and then other people would look to top that up? Instead of building an ordinary house, you can build a very good house. Could you talk about that, please?
Mr. Willmot: Absolutely. Building homes in the community is really sitting down and mapping out that long-term plan, taking advantage of all of those tools. Yes, our program is specifically to give the end user — the family — something different than they're currently receiving at CMHC, to give them the flexibility to build something on their own. In fact, I would say that most of the mortgages that we have out in this particular program are stand-alone, build- alones. They've not been part of subdivisions. They're not so much band- or community-owned; they're individual, family-owned.
The other point I'd like to make is that we're starting to see in communities a market starting to develop, where homes are coming up for sale in the community and starting to change hands. That was part of the intent from the very beginning. We wanted to be able to create a market in the community, where a person of my age could say, ``My family is grown up now, so I don't need this big home anymore. My wife and I want to move to something a little smaller, put our house up for sale in the community and let another family come in, to keep turning those homes around and to draw my equity back out of that home.'' We're really starting to see some of this happening now, and I don't see anything but positive things in the future for that, too.
Senator Sibbeston: That is significant because I have live in the Northwest Territories where there's a certain amount of social housing, but there are people who just simply borrow the money. There are no reserves in the North except for Hay River, so the bank is able to loan money to individuals to build or provide their own homes. It seems like there's a real difference. People can say, ``I can just get a government house, and I don't have to pay anything except a certain amount of rent every month maybe.'' Simply getting your own house and your own mortgage, there's a real difference. I'm curious to know whether there is a growing trend for First Nations people on-reserve to simply want to be independent and basically buy their own homes.
Mr. Willmot: I would agree with that. I've witnessed that myself. People want something different. They want to build a home that they can feel proud of. I think the difference is that pride of ownership; you can really see it. Mr. Cameron and I have travelled to many communities over the years. You can really see the pride of ownership when someone has their own home and has this legacy they can turn over to their family. They've built equity up. I see that trend improving.
Mr. Cameron: If I can add to what Mr. Wilmot is saying, senator, when we start off with a discussion with the First Nation communities, we look at what the housing need is on the reserve on an aggregate basis, and we work with them to determine what percentage of homeowners will be in rental homes and what percentage will be in home ownership. We try to fill the gap. Our On-Reserve Housing Loan Program is set up so that the individual member can construct or purchase a home, be the end homeowner and have pride of ownership, but we also find ways to build those homes potentially for rental or interim rent. Some communities we've worked with have done a rent-to-own basis. The community will build 10 homes. They have 10 renters. There may be a portion of income as rent. It may not be the complete level to service a loan on its own, but they build up to that. So they build their credit history. They have a rental home, and then they can rent to own.
We look at the housing portfolio of a First Nation community to determine where we can assist with the First Nation's needs, so it's not just our On-Reserve Housing Loan Program. It's how can we get these homes constructed? What's the need, and how can we get the individual members into the homes? Again, this is along with the other programs through CMHC, through section 95 and section 10, which have been around for some time.
Senator Moore: Thank you, gentlemen, for being here. In both of your programs, the applicant must have a certificate of possession issued by the minister, correct?
Mr. Cameron: Usually we have title or access to a parcel of land. It can be in the form of a certificate of possession. That's probably common in Ontario and across the country.
Senator Moore: I'm just wondering, do these certificates of possession have a term attached to them? Is it for 10 years, or must they be at least as long as the amortization period of the mortgage?
Mr. Willmot: Royal Bank does not require a CP.
Senator Moore: You do not?
Mr. Willmot: No.
Senator Moore: Okay. When your bank gets a guarantee from the First Nation chief and council, if the chief or the council changes, does that first guarantee stay in place, or can it be shortened or altered at all by a following new council and new chief?
Mr. Willmot: In my experience, the band council resolution that supports our guarantee has always been honoured by any new council that has come in.
Senator Moore: Is that the same in your experience, Mr. Cameron?
Mr. Cameron: Yes, it's the same in my experience. One thing I will add is that there have been instances or situations where a newly elected chief and council will come in, and before they will issue a new guarantee or supporting BCR, band council resolution, for that guarantee, they will review the program to ensure they're comfortable with it. We then go and sit down and review the program, explain to them the nature of the guarantee, et cetera, just so that they understand how the program operates, and we walk them through the process.
To Mr. Wilmot's point, we've had tremendous success with the succession of chiefs and councils, specifically in Ontario, in supporting these types of programs because they are offering access to capital to their members without providing the capital.
Senator Moore: So you do sit down and go over the program with them?
Mr. Cameron: Yes.
Senator Moore: But they know that they can't change it. You're educating them on the process and the program, but they know that they can't —
Mr. Cameron: At any point in time, though, we can sit down to renegotiate a particular term within the program. This is not iron-clad, set in stone forever. A guarantee is in place for the term of the loan — and that would not change — but perhaps a term of the program may be amended after two, three, four years, depending on the needs of the community. An example would be if the average cost of construction went up and they needed a higher maximum per borrower. We could easily change something like that.
It's important that each time there's any succession of chief and council or staff in the housing department or the administration, we sit down to explain to them how the program works and make sure that they're comfortable with it.
Senator Moore: I was interested, Mr. Willmot, in the skip a payment and the double-up programs within the Royal Bank's offerings. Does anybody take advantage of those things?
Mr. Willmot: Absolutely, yes.
Senator Moore: What sort of percentage?
Mr. Willmot: I think one of the big differences between the Bank of Montreal's program and ours is that ours is truly a mortgage, so all of the options available to the end user — the family — off-reserve are available to the individuals on-reserve.
Come December, if your furnace goes and you need to skip a payment to repair that furnace, it's allowed. Not often do people take advantage of that, but we have come across some.
Flexibility on mortgage involves the terms, the amortization and the payments. They sit down with their banker and flesh that all out so that the cash flow of the individual family makes sense to them. Our goal is to keep the family in the home and let them build equity in their home.
Senator Moore: That's great. In the example you mentioned about somebody's furnace going on the fritz and having to skip a payment, who does the homeowner speak to in that regard? Is there a branch on the reserve or a housing office on the reserve? Who do they see to seek that relief?
Mr. Willmot: Just remember that skipping a payment means it's tacked on at the end.
Senator Moore: That's right.
Mr. Willmot: They go to their banker to negotiate. Would we notify the guarantor? Not necessarily, but it's definitely a relationship between the individual family and their banker.
Senator Beyak: Thank you, gentlemen, for a very informative presentation. I was very gratified to hear it's working so well, even though you said there have been a few problems, including payback problems. Generally, it's working well and has a great history.
Could you explain more about the foreclosure and default procedures, if they occur?
Mr. Willmot: As part of the partnership, our responsibility is to follow up on the collections and to monitor payments. We take that responsibility, not the guarantor. We notify our guarantor if a client is behind over 30 days — put them on notice — but we work with the client. The goal is to keep the family in the home, as I said. Clearly, options are available to the First Nation if they need to step in. Choices would range from supporting the family to bringing their payments up to date. As I mentioned earlier, we're starting to see homes come on the market. If someone loses their job, maybe it's time to put the house on the market and draw their equity back out.
I've not come across this, but often the First Nation will step in, take the property over, and add it to their rental portfolio. We've never had to foreclose or call upon our guarantee. We've always been able to intervene in the short term to make it work for the client.
Mr. Cameron: Yes. Our process of course is quite similar. We have regular reporting, so each month the local branch provides a detailed report by borrower — an amount as to what portfolio is outstanding at the end of each month. That report also shows any arrears and how long they've been outstanding. If it's more than 30 days, then the bank, as Mr. Willmot said, would contact the individual member to try to resolve it and bring the payments up to date. If there are any issues or delays with that, then we also approach the housing department or the housing authority to work with them to understand the circumstances and what might be going on with the member and to look at solutions to assist. If it goes beyond an extended period of time of 90 to 120 days, prior to that the bank works with the housing department and chief and council to look at alternative solutions.
I've been involved in similar situations where the First Nation assumed the loan and became a rental property to that member. One thing I will say, though, is that both the First Nation and the bank do a good job of the due diligence of the member to ensure that they repay because we don't want to put the First Nation chief and council at risk and just get a guarantee without qualifying the borrower. We have a lot of confidence in the member's ability to repay to start with; we have ongoing monitoring throughout that process; and we work closely with the housing department and hopefully chief and council to look at situations.
One challenge that is a common theme is enforcement on-reserve because, obviously, chief and council don't want to evict somebody. As Mr. Willmot also mentioned before, the bank understands the authority levels of the First Nation. Does the housing authority have the authority to enforce payment or rent or what have you? Is it separate from the chief and council, which could be more political? It's our job as the financial institution to understand how the First Nation operates and to set up a program or financing that accommodates those needs to ensure that we can avoid those situations as much as we can.
Senator Beyak: I'm very impressed — this is great hope for First Nations people. There's nothing like the pride of ownership.
Senator Meredith: I have a quick supplementary on own-source revenues on First Nations, some of which are entrepreneurial. Where are these individuals getting their income from? Is it assistance? Is it entrepreneurial? Is it what they have in their own businesses? Where are these funds coming from, as you tied into the rate of individuals being delinquent and potentially having to exercise working with the chief and council to ensure that is resolved? However, in those cases where they go delinquent, can you explain where those revenues are coming from?
Mr. Cameron: Yes. Obviously everyone knows there are different employment opportunities. Some work for the chief and council; some are entrepreneurs; some work off-reserve but live on-reserve. As we all know, there are various cases and circumstances, so there's no one recipe. The bank would look at the individual's income. Both RBC and Bank of Montreal do one thing: If the individual is tax-exempt and can validate that, we will gross up their income so that they're on an equal playing level. We look at the debt serviceability of the individual similar to somebody we would look at off-reserve. We take that income level, whether it be employment income or entrepreneurship or business for self and make the assessment on that basis.
Mr. Willmot: Yes. The individual family, the mortgagee, is qualified through the bank. Gainful employment is key — their cash flow is key.
In my experience, fortunately, we've never had to foreclose. We've never had to go down that path. We are aware that it could happen. As I stated before, our goal is to see the family in the home. If for whatever reason the family loses their income — the job disappeared or something else happened — tough decisions for the family have to be made, and it may mean getting rid of the home and reaping the benefit of whatever equity they have in the house and moving to a rental property. Clearly, qualifying the family up front in the same way you would qualify anyone else — their character and ability to service their debt — is taken into consideration prior to advancing the funds.
Senator Wallace: Gentlemen, as I listened to your presentations, from both BMO's and RBC's perspective, providing funding for reserve housing seems to be a positive experience. You're optimistic, and I'm pleased to hear that.
A number of witnesses have appeared before us. My perception of what they said is that a severe housing crisis exists on certain reserves across the country and that to a large extent it exists because insufficient capital is being provided to meet the housing needs of those living on-reserve.
Could each of you indicate from your perspective what you would see as the most significant obstacle to increasing private sector funding that would help to alleviate or satisfy this housing crisis? I know there are a number of issues, but what are the big ticket items that we should think about when we're writing our report?
Mr. Willmot: From my perspective, housing is just one strand of a broader spider web. For you to be able to apply for a home or to apply for a mortgage, you need gainful employment, so job creation, business development, infrastructure in the community and access to more capital are all things that would help accelerate the construction of homes in the community.
What I witness myself is that as you move further north away from major urban centres, job opportunities are not available, or they are few and far between, and the opportunity for us to apply this particular program in those communities is limited at the best of times.
If I was to give you that thought, you can't look at it in isolation. It's got to be looked at from a broader perspective. There's a circle of things that really need to be addressed: education, business development and job creation. These are all fundamental to home ownership and healthy communities. For us to look at housing in isolation is just not fair. You really have to look at a broader understanding of what the issues are and what the challenges are.
From my perspective, it's an opportunity to participate in the Canadian economy, to have meaningful employment and to be able to be proud to be contributing. No one wants to be on social assistance. Everyone I come across wants to be gainfully employed, wants to be participating and wants to have a meaningful life and to be contributing. I think if there's anything that you take away today, it's don't look at it in isolation. There's such a broad range of needs that must be addressed.
Mr. Cameron: If I could add to that, you can't take it in isolation, but if we were to try to address the housing issue, it's definitely a consistent message that is heard in Aboriginal communities across Canada. I think that that's where it comes down to looking at what the housing needs are. If there are individuals who are in homes whereby capital is provided by the First Nation, perhaps that could be redirected and funded through a bank and they can provide the housing to lower-income individuals or others. It's just redeploying that capital and looking at a strategic plan, not just from the housing perspective but also from the general infrastructure needs of a community.
Mr. Willmot mentioned the education and the economic development. Continually I have meetings with First Nations who are now looking at developing their economic development corporation to look at business opportunities that start with employment and return on their capital so that it generates within the reserve and creates employment so that those individuals can then look at applying for homes and/or home ownership. I think it starts with a strategic plan with the First Nation community and identifying those needs and where the gaps are, because it is part and parcel all the way from education to employment, which is what generates payment.
Senator Wallace: In the banking business, it's all about assessment of risk. That's the basis on which you make your decisions to loan funds. If there were no risk, then there would be no reluctance to provide loans. If, for example, the federal government were to extend guarantees to bands and councils, both in respect of constructing housing units and infrastructure, I guess that would remove the risk that the banks would have in extending loans. Is that a major part of the issue? The creditworthiness of the bands themselves is an issue; therefore, you would not provide the funding directly, and the government is not providing sufficient guarantees?
Mr. Cameron: It's difficult to provide a blanket generalization of all the First Nation communities, as we all know. Looking at it on a case-by-case basis, I don't think it's necessarily about the lack of guarantees and capital. I think it should be approached on a collaborative basis so that the First Nation and the different levels of government can come together to understand what the needs of the First Nation are to find out where the bank can participate or assist, and the various levels of government. I'm very hesitant to answer a generic solution without understanding the particular needs of a community or region. In my view, anyway, the success we've had is when we have good partnership with the First Nation, with their consultants and with the various levels of government to look at a long-term plan as opposed to just a simple loan on day one.
Senator Wallace: Do you find that a significant number of reserves do not have these plans in place? You do not see that long-term planning; therefore, it discourages you as a private-sector lender from participating in funding housing in those reserves?
Mr. Cameron: In some cases, but going back to what Mr. Willmot reiterated, one of our responsibilities, at least from my role, is bringing in or introducing the expertise in various areas, whether that be with another First Nation community that has gone through similar experiences, whether it be a lack of project management or consulting services or whatever, to bring the expertise to do that planning, perhaps. It just depends on the need. I hope that answers your question.
Mr. Willmot: It should also be noted that the particular programs that we are talking about do not require federal government guarantee. These are stand-alone programs. We do not involve CMHC. We do not ask for a federal government guarantee. To Mr. Cameron's point, it's built on relationships with that particular nation.
We do sit down and do long-term plans. Not everyone wants to adopt this type of program. We've had many communities say, ``No, it's not for us. We're going to continue to build our homes through the current tools available to us,'' primarily through CMHC support and, in turn, a federal government guarantee. In my experience, we have not had any challenges with regard to building CMHC homes through the federal government guarantee, but to me it's just one tool. You as chief and council or your housing authority should be able to pick and choose from a smorgasbord of products and services to help bridge that gap.
Can more be done? Absolutely. You talked about crisis. It's a huge crisis out there. Tens if not hundreds of thousands of homes need to be built, and many homes that I've seen are in dire need of repair. You can see it. You can see it first-hand. At the end of the day, it is improving. Are we catching up to fill that gap? I don't think we are.
One of the senators mentioned the young and growing population, and absolutely there's a huge opportunity for us to build more homes. We are going to continue to do that and grow our portfolio, but using all those opportunities and programs available to the community. If they're not aware of it, then our goal is to make sure that education process takes place as well.
Senator Wallace: If the band and council are creditworthy, then I would think the banks would be only too eager to lend them money. At the end of the day, that's what it's about?
Mr. Willmot: Yes.
Senator Wallace: The financial strength of the bands and councils.
Mr. Willmot: Yes.
Senator Watt: Thank you for your presentations. I believe we still have a huge number of Aboriginal people across the country who have been impacted by flooding and are still looking for homes. I for one know a certain number of them are still living in a hotel today. Could you enlighten me in that area? What do you do if there is an emergency case such as this and the people require not only housing but the whole infrastructure requirement in the community?
Is there a department within the bank that is able to work with the community, such as the ones impacted by the floods or whatever disaster there may be, at the same time having a working relationship with the Government of Canada, especially the Department of Aboriginal Affairs? Could you enlighten me in that area to see what your area of responsibility is, if any?
Mr. Cameron: Perhaps, without trying to get too granular, I can explain an example of a situation where the bank is assisting the First Nation community with the remediation and restoration of homes damaged through a flood in addition to a lot of the renovations to look at preventive maintenance on that. As well, a piece of that is new construction.
We assist the community and we work very closely with Aboriginal Affairs, with the First Nations consultant, on the project for the restoration. We assist in partnership with AANDC's new construction capital to fill that gap to look at that.
The bigger challenge they have, according to the First Nation, is the lack of proper infrastructure to avoid its happening again. They're going through an analysis on the cost of the last two incidents versus a preventive maintenance approach of infrastructure up front to avoid this type of financing. I think that's where it's important. I refer to it as a collaborative basis to look at these types of large infrastructure projects on a community-to-community basis, where there are issues of flooding because the cost to redeploy members out of the community and then come back, not to mention the impact it has had on the community as economic development or operations of a First Nation, is huge.
We are working as closely as we can on developing a plan, strategy and analysis to look at a long-term infrastructure to avoid this type of flooding in a particular community.
Mr. Willmot: Senator, it is a similar situation for us. We have established many relationships with communities and we step in when we're called upon, and we often are. Whether it be from a philanthropic perspective or a financing perspective, RBC has always stepped forward and provided support where needed, especially in a case of emergency.
If a community is flooded out and damage is done, our role is to provide the capital required to move forward. The circumstances and the communities are all very different, so it's difficult to paint one picture to answer the question.
Our responsibility is providing the capital, the financing, and working with the client as they develop a plan to get out of the situation they're in or to remedy a problem that may have been created.
When you talk about flooding, often diking is taken into consideration. Sometimes you question whether or not you should be applying assets in some of these situations. Those are not decisions that I make — that's for sure — or the bank makes, for that matter. These decisions are made by our clients and their partners. If resources are needed, then we will step in and provide those resources.
Senator Watt: In relation to deciding on the location, because some of those communities probably have to be relocated altogether to another location, and I would imagine that as a bank that wants to get back with an investment they have made, you are going to make sure it is the right location if they ever relocate to another site, which might be on higher ground than lower ground.
The capital would be heavily required, and I don't imagine that the bank would go along without guarantees from the government, especially on an area that was flooded in the past, even if it's another location.
Would you have some influence over the government in regard to location because the capital is an important part that you will be investing into the community?
Mr. Willmot: Not in my experience, senator.
Mr. Cameron: No.
Senator Watt: No, what?
Mr. Willmot: I don't provide any influence at all in the decision process. It's not my place.
Senator Watt: Is there anything we can do as a committee in that field, when we finally start writing the report? The report has to go to a minister at some point, maybe even several ministers. What would you recommend to us, if we have to handle something in the case of an emergency? If we don't have a mechanism in place, we are going to continue facing the problem we face today. People are still living in hotels and have no homes, and they probably don't have any capital whatsoever to help themselves.
Mr. Cameron: That's the key question, I think. Does the bank have influence with Aboriginal Affairs? No. But I would like to say that we would like to see the strengthening of that collaboration so that when we look at situations such as communities in lowland areas, flood risk and other things, I would welcome the opportunity to speak with representatives of Aboriginal Affairs to develop a long-term plan for relocation.
It has to be a thought-out process and an implementation process that works. To answer your question as directly as I can, I would welcome an opportunity to discuss these types of options with members of Aboriginal Affairs and the various levels of government to look at solutions, specific to certain communities, because it's not always the case, of course, across Canada.
Senator Watt: Would both of you be prepared to hand us something in writing in terms of the request you think is necessary at this point?
Mr. Cameron: I think from our perspective, I could take that away and provide a written response once I've had a chance to speak with my colleagues. I welcome that opportunity, and I think it would be a great option for the bank to look at, have a discussion and see where that goes.
Mr. Willmot: I would offer the same, in all fairness.
I'll share one story. I won't mention the community, but being there in the springtime in this diked community and watching an iceberg, which would be about 20 feet above my head, floating by the river, that community shouldn't be there. In the summertime it's a trap; it's where all the flies come in. That community should not be there. They should be relocated or moved somewhere that's more appropriate. That's one of a number that I can think of.
Is that my decision to make? No. Do I have influence over that from a financial perspective? No.
Our goal, and Mr. Cameron has already mentioned this, is to work with our partners, work with the client, their support mechanism and their partners. If they decide that's where they want to be, we're there. That's our responsibility.
Mr. Cameron: If I may ask, through Mr. Chair, if you could provide me with some context as to the nature of what you're looking at from BMO and our participation, I would be more than happy to provide a response and get back to you.
The Acting Chair: We will ask the clerk to craft something out of the transcript here to guide you.
Mr. Cameron: Just something basic to give some context. I appreciate that. Thank you.
The Acting Chair: I will ask a question and then we will move to round two.
Mr. Cameron, I want to ask a little bit about the First Nations Market Housing Fund. You are a participant at BMO. We understand that around 50 loans have been granted out of this program. It sounds robust and innovative and so on.
Could you give us some observations, first of all, on why you think there have been only 50 loans so far, how the relationship is with the fund, and maybe give us some cause for optimism in the future?
Mr. Cameron: Absolutely. My colleague had initial discussions with the First Nations Market Housing Fund from the beginning. I think at least Bank of Montreal saw this as an additional opportunity to have participation and support as another program. We are currently going through an internal process to formalize a policy around participation in the First Nations Market Housing Fund. What it has done for us and our community — one of our larger communities in Quebec, in particular — is that it not only has provided support for a housing and loan program, but it has also provided similar support for a development of 20 new single-family units. That's given us and the bank that little added comfort level to extend beyond perhaps what we normally would have done.
It's been an ongoing process. We work very closely with the First Nations Market Housing Fund. Why are there only 50 loans? I think part of it has to do with the participation of the fund; the process may take a little bit longer than if we were doing it on a stand-alone basis. We potentially have to do the due diligence with CMHC, so they need their time to do their due diligence. The First Nations Market Housing Fund has done the bulk of their due diligence, but then they need to provide their support under the program based on the parameters that are outlined with the community.
The long and short of it is that perhaps it's a bit of a longer process, but I think also it may not be leveraged as much as it should be. I'm not sure of the exact answer. Perhaps not as many communities are aware of the program or think they would benefit from the program, so it's our job to bring in that option when we have our discussions.
The Acting Chair: Mr. Willmot, you're not in it. Can you tell us about the thinking behind not being in it?
Mr. Willmot: First of all, you're correct, senator, we're not in it at this point in time. We are in negotiations. I see the First Nations Market Housing Fund as another option for council. Clearly there is a trend or a growing curve here. I think one of the values of the First Nations Market Housing Fund is to put in place some of that infrastructure that both Mr. Cameron and I would look for internally from a community, to have those policies and that housing authority in place. The First Nations Market Housing Fund is a great resource for communities to build that capacity, so I see that as having great value.
My understanding is that Royal Bank is currently in negotiations with the First Nations Market Housing Fund to continue to talk this through, and hopefully at some point in time we'll perhaps be a little more active with that particular program. I see it as having great value. The fact that they have only 50 loans outstanding at this point in time, I think that's just the tip of the iceberg and that it will grow. That's my personal opinion.
The Acting Chair: Great. Thank you very much.
Senator Meredith: Gentlemen, there are 612 bands across Canada, approximately. The numbers keep changing as bands split away and so forth.
Mr. Cameron, you talked about 73 programs, $90 million outstanding in mortgages.
Mr. Willmot, you talked about 85 programs and $180 million. Obviously, RBC is leading the way.
Comparing the two banks, are there more stringent criteria with BMO as opposed to RBC with respect to approvals? Can you elaborate on that for me? Then I will put a challenge to you as well, in my next question.
Mr. Cameron: From my perspective, we have the benefit of competing against one another all the time, so we have communities that have both our programs.
Senator Meredith: He's obviously kicking your butt.
Mr. Cameron: RBC is a strong player in the Aboriginal market. Where we have a bit of an advantage is that we have a national office as a national focus to guide us across the country.
Specifically to answer your question, we customize our program to the needs within the community. Our process is somewhat standardized with the application process. We require a 5 per cent down payment or an equity component within our program. We feel that provides enough equity or stake in the transaction that people take pride in that ownership. We want to ensure that the individual has the wherewithal for a down payment.
That may be one difference between the criteria with Royal Bank's program and our program, but I don't think there's anything more material, other than maybe a few different things. I think it's just the visibility and branch network availability of a Royal Bank in one community, versus closer to BMO in another community. It's also about distribution of the branch network and also where those communities are situated.
Mr. Willmot: Not to correct you, senator, but it's roughly just over $120 million that we currently have outstanding in the program. It has been a great success, but we do qualify those individuals exactly the same way. All the various ratios, whether it is the Gross Debt Service ratio or the Total Debt Service ratio, they are the same ratios we apply in the mainstream. There is a rigour and a due diligence done by our branch staff that qualifies these families.
As I mentioned, it is a mortgage. It's not a fixed-rate term loan. So it does have all the flexibilities of a mortgage as well, and there is a list of those that go on.
There is no increased or lessened rigour that we apply to someone on-reserve or off-reserve. The goal all along was to level the playing field, to make sure they had equal access to the resources, and the experience, for that matter. It's part of our mantra. We are out there in front of the client, in front of the community, to support their needs, whether it is a family's need or a community's need at large. The rigour is there.
Senator Meredith: I guess part of your take-away as well is that over the last several years or several quarters, RBC has made record profits, and BMO as well. Obviously, they're outpacing you, so I guess changes need to be made to catch up.
However, when I look at all of this and see the crisis across this country, and we see the various floods that have taken place in Attawapiskat and other communities that are severely disadvantaged, from a strictly corporate sense of responsibility, what programs have both of your banks employed with respect to education and showcasing the opportunity to have a piece of the Canadian dream, of having home ownership, in terms of educating the other band members across this country? What have you done in that regard? What have you done also in terms of your giveback — not from a profit perspective, because I know things are always driven by profits: What can we do, and how many homes can we get mortgages on so we can be profitable? But from a purely ``This is what we're doing, as RBC, to give back to these communities and individuals who are marginalized so they can have a fighting chance,'' what have your banks done in that regard?
Mr. Cameron: Perhaps I can give the committee a bit of context form Bank of Montreal's point of view and strategic direction.
We have support right from our CEO. In fact, Bill Downe was out with Chief Atleo on a cross-country visit to our communities, and there's a high priority within the Aboriginal market within BMO. One thing we have participated in since the inception through the Canadian Council for Aboriginal Business is a Progressive Aboriginal Relations, PAR, program, where we are considered to be the ISO of institutions dealing with Aboriginal markets. It looks at the four pillars. We've been pleased to have the fourth consecutive gold PAR. We were the first financial institution. It involves community involvement in infrastructure in banking and also our sponsorship and involvement. We participate in various scholarships for education. We participate, along with RBC, in the Capital for Aboriginal Prosperity and Entrepreneurship, CAPE, Fund and various other things. We have a very holistic approach when it comes to the strategy in the Aboriginal market.
Without trying to cite numbers for sponsorship dollars, we have various programs that we offer and support, not only on a First Nation feet-on-the-street basis but also with government organizations. We're a big player with the Aboriginal Financial Officers Associations of Canada on a national and regional basis, as well as, of course, the Canadian Council for Aboriginal Business.
Mr. Willmot: RBC is the only financial institution that has adopted the Assembly of First Nations Corporate Challenge. We report to the AFN on an annual basis through a report called A Chosen Journey. There are four pillars highlighted in A Chosen Journey: economic and social development, procurement of services and goods, access to capital and financial services, and to be an employer of choice. We report annually to the AFN on our successes and challenges.
Last year RBC, from a philanthropic perspective, granted over $2 million to Aboriginal initiatives across the country. This is the third year in a row that we've topped $2 million in grants. We have a specific focus on employment and training at this time. We have, as our colleagues have, scholarship programs. We have a stay-in-school program and an undergraduate program. Our goal is to bring First Nations people into the financial industry.
At any First Nations house across the country, I often ask: Who is in commerce or who is taking finance? You rarely see those individuals. The reason is that not many of their peers have taken these vocations. We see them in social services, law and education, but that trend is starting to change as well. We're starting to see more and more people getting into commerce, finance and business administration; and we support them in that.
Senator Meredith: What about the entrepreneurial? Can you expand on folks on-reserve trying to start businesses?
Mr. Willmot: As I mentioned earlier, our goal is to level the playing field so they have equal access to those resources and experiences. The first priority from RBC's perspective is the transfer of financial knowledge and skill. We participate with a number of groups across the country, and, for that matter, in the province here.
For example, through sponsorship and others, we support the Waubetek Business Awards, the Nishnawbe Aski Nation Business Awards and the Toronto Aboriginal Business Association Awards. Next week, I will speak at the TABA Awards on Aboriginal Business Day specifically about small business and what a banker expects from you and what you should expect from your banker. These are some of the things I do to break down those barriers. For some reason, bankers seem somewhat intimidating, and there's no reason for that at all. We're just humans and our goal is to see that our clients succeed. Being able to take that skill and knowledge and transfer it to my community is a big bonus for me.
We're often told that we're given a gift, and if that's so, we have a responsibility to share that gift. I struggled for many years trying to figure out what my gift is. With 40 years of banking experience, it just clicked in. About two decades ago, I said that I should be able to share this; and I've run with it for my career. I'm in front of clients on a regular basis. My phone is always buzzing with regard to, ``Harry, can you give me an idea of what I need to do to turn this no into a yes and to be able to work with those clients?'' We've been quite successful in that matter.
More always needs to be done, and we could do more. At the end of the day, I' m quite proud of RBC. We've got a great story to tell, specifically on this market.
The Acting Chair: You've told it well, sir.
Senator Raine: It's nice to see that you are so enthusiastic and that you see a bright future — it's not all hardship and suffering.
I want to ask both of you. The First Nations Financial Management Board is doing training in financial literacy and certification of First Nations. Are you aware of that? Do you support what they're doing? Are they on the right track?
Mr. Cameron: Perhaps I can speak to that, senator. I recently came back to Aboriginal banking about a year ago. My colleague Stephen Fay, who is our head of Aboriginal banking across Canada, has been involved with the First Nations Finance Authority from the beginning. We work with a lot of those communities on the program and the capital that's available to help launch that. It was Steve Fay who introduced our capital markets group to look at the issuance of the bond to go to market. It's a great option for a community.
Some of the feedback we've been hearing is that it can be restrictive at times just because of how the model is set up. One could argue it has some challenges, but it's a good avenue for capital for infrastructure to First Nation communities. It seems that it may not fit all communities across Canada; and that seems to be a bit of the message.
Senator Raine: That's probably common in most programs because communities are so different.
Mr. Cameron: Absolutely.
Senator Raine: Mr. Willmot, did you have a comment as well?
Mr. Willmot: No.
Senator Raine: In housing, is there any difference between financing a traditionally built home and a modular home? Do you see any future for the financing of modular homes, especially in remote communities?
Mr. Cameron: Yes. We are approached a lot by First Nations looking at providing more units at a lower cost base. We look at these, and I won't say on a one-off basis, but we're just beginning to develop this with a lot of our First Nations communities because it seems to be more and more relevant to some of the other communities, so we are doing it.
Mr. Willmot: RBC as well finances modular homes. It's part of the package, but I don't see a lot of it. The trend is that we'll start to see more of that in the future, only because of costs. At this time, I would say that of the 100 mortgages on our books, maybe one would is a modular home. Just in my travels and hearing what's going on in the marketplace, I see that trend coming.
Senator Raine: Do I understand that the maximum loan from RBC is $150,000?
Mr. Willmot: That's correct, but there is some flexibility. Once we sit down with chief and council, they establish the range. They tell us the maximums and minimums they will accept. More recently, in certain communities we have gone over $150,000 on an exception basis, but everyone is involved in that decision-making process.
In all fairness, as we move to the future, that range will have some flexibility as well. Clearly, the cost of building a home today as opposed to 15 years ago has increased significantly. We've been flexible enough to move that range as well, but currently it's $150,000. That's sort of our standard.
Senator Raine: Can you tell me what size of a home you can build with a mortgage like that?
Mr. Willmot: Yes. I just built my house, so I can tell you first-hand. Mind you, I built it myself, but at the end of the day, for 1,300 square feet, it cost me probably $120,000.
Senator Raine: So about $100 a square foot?
Mr. Willmot: No, it depends. If you're up in the North, there's a big difference there, for a variety of reasons, such as the base you're putting the house on. Do I dig a basement? Is there a foundation? Am I in bedrock? Transportation costs alone are significant, so for me to build a home on the island in Parry Sound is different from going to somewhere in central Ontario where you've got to fly in or use the winter roads to move building material. I would suggest that a similar-sized home in the North would probably cost me another $50,000.
Senator Raine: The products you're offering are really one part of the picture. To address the housing crisis we have, we need to get creative in terms of having more units being able to be financed by the banks. Are you looking creatively at maybe moving into modular homes or opportunities for First Nations to build modular homes on the reserves?
Senator Meredith: If I may interject, even new technologies as well, in terms of lowering the cost, producing those units quicker so the need can be satisfied?
Mr. Willmot: Absolutely. We are in tune with the innovations that are coming down the pipe. We know that a traditional, what I call stick-built home, which I built, is not necessarily the most efficient way to build homes, especially as you move further north into some of the more remote communities. Some of the materials being used nowadays are significant compared to the old wood frame home that is traditionally built, and at a lesser cost, too. We're very much in tune with the trends and innovations that are coming up.
We do accept modular homes, there's no doubt about it, if that's what the community wants. We are not here to dictate to the community what type of home they have or how to build that home. Our responsibility is to provide the financing for it and to ensure that they meet proper standards that have been set out through codes.
Mr. Cameron: We're seeing that same mind shift. Even further to that, we're seeing their buildings being pre-built through companies like ATCO or whoever that would take the modular home concept and create or pre-build, whether it be an administration building or a sports arena. I've seen various examples with my colleagues, more so out in the Alberta area where it's a lower-cost product, and if it's a fly-in community they don't have to do the transportation back and forth. It's still expensive, of course, but it's pre-assembled. It comes on the site and they can design the particular architecture from that frame or from that building.
We are seeing other lower-cost opportunities out there that communities are investigating to reduce the cost of construction or reduce the cost of capital. We're seeing some of those where there are other entities like ATCO or whoever that are building these types of product in a controlled environment, whatever type of product it is.
Senator Wallace: It has been suggested to us that increasing the number of multi-family units on reserves would be an effective way of, in part, addressing the housing shortage that exists on-reserve. From a private lender's perspective, do you see particular challenges or obstacles that would make it difficult to increase the number of multi-family units or the appropriateness of multi-family units on reserves?
Mr. Cameron: Can I perhaps clarify? Are you referring to one unit with multiple families in it?
Senator Wallace: Yes, as opposed to single-family units.
Mr. Cameron: What is the question related to that?
Senator Wallace: As a private sector lender, do you face challenges or obstacles that would make it difficult to increase and finance multi-family units on reserves? Is it because it would be on-reserve, do you face other obstacles or restrictions that would make it difficult for you to increase the funding for multi-family units on-reserve? Do you understand what I'm saying?
Mr. Willmot: Just for my clarification, too, are you talking about, for example, row homes, where a number of families would live in a larger complex but each family would have their own unit? Is that what we're thinking of?
Senator Wallace: It could be, or it could be building vertically. It could be a six-unit building, as opposed to the discussion we've had, each person occupying their own individual, separate, free-standing single unit.
Mr. Willmot: We have seen that type of construction going on in Atlantic Canada. There is a little bit in Ontario, not a lot. Is there a trend towards this type of a home? I don't see a lot of it, but I know it has been applied in a variety of communities, and we don't have any issues with that at all.
Mr. Cameron: I reiterate the same point. We don't see a lot of it but we are seeing more interest because you have economies of scale when you build a six-unit home. I was just in discussions with one community that is looking at a six-unit, multi-unit building because it's to house a certain demographic of the community that can live in the multi- unit. The young, just out of school, just getting their first job want a small one-bedroom or two-bedroom, and they can build six units to service that. I've seen examples, and I think communities are exploring that. It's just based on the need of the community, because obviously you can't put elders in a six-unit, three-storey multi-unit facility.
Senator Watt: To continue on with what is being talked about, you used the house that you have built on your own as an example. I wanted to mention the fact that when dealing with the North, you're dealing with a much higher requirement. For example, a three-bedroom bungalow in my area is $350,000 to $400,000. That's because of the high cost of transportation and the high cost of goods. When you're dealing with a community such as that, they have very little purchasing power, if they have any.
What do you do with an area that has made a request to you for financial assistance, knowing that they are isolated communities, remote communities, with the high cost of transportation? Do you at times have to turn down the request being made? If so, what is the solution if you run into that problem?
Mr. Cameron: From my perspective, as I said before, we are going through an opportunity with a First Nation that has three projects — restoration, renovation and new construction. Their cost per unit was more in the area of $275,000 per unit. They ran into a significant cost overrun because they missed the winter road and it changed the entire budget. The bank worked with the community and, more important, with Aboriginal Affairs.
When we go into a project with a community, regardless of the average cost to build the home, we need to look at the fundamentals of the project and who is participating in it. Is there going to be a portion of capital provided by AANDC? Are there other sources of capital? Does the community have any equity? What sort of gap can the banks fill with respect to that capital or financing to see if it makes sense? That is, if it doesn't make sense and it's for a proposed 20 new units, or whatever, perhaps it could be 10 units as phase 1, or perhaps look at other options if that's not feasible. What's the purpose of the homes? Will there be any form of rental income or any sort of subsidy coming in to help assist with the debt repayment?
As I've said many times, we look at the project as a whole. One thing the banks don't want to do is put a First Nation at any undue risk. We're not going to do a loan to an Aboriginal organization or member just because there's a guarantee or some sort of backing or support. In those cases, we try to work with the community to determine maybe a smaller-scale project or other alternatives. Perhaps it means asking the community to see if AANDC could provide additional capital and look at solutions. It's never just, ``Here's what's presented to us. It's a no. Thank you.'' It's ``Let's do the analysis, look at the project and see what other options are available if it doesn't make sense at the time.''
Mr. Willmot: There's a similar approach from RBC. The only reason we would turn down a request for financing is if the individual just didn't qualify. The fact that it does cost significantly more to build in certain regions than others is usually understood within the region, the cost of that home, and it's taken into consideration as we advance the community's vision and the community's long-term plan. Again, the only reason we would turn that down is if the individual just did not qualify from a financial perspective.
It is the same as with Mr. Cameron. We would sit down with council if there's a shortcoming and ask, where can we look to bridge that gap? It may be other partners. We may find other revenues within the community to tap into fill that particular need.
Senator Watt: One short question for my personal interest, I guess. Do you have any borrowers from the Arctic at this point, or are you dealing only with First Nations at this point?
Mr. Cameron: My apologies. I don't have the information handy, but I can certainly gather that.
Senator Watt: In the Arctic, I imagine they would qualify for the same programs that you people are administering.
Mr. Willmot: There is a difference.
Senator Watt: That's why I raised the issue of the high cost of transportation, because of distance and things of that nature. I want to know whether that is falling through the cracks or is it workable.
Mr. Willmot: My experience has been with First Nations, so I don't have an answer for you there. I do know that we are the bankers for the Nunavut government, and we are very active in the territory from a variety of perspectives, but I can't speak to that first-hand, senator. I just don't know.
Senator Watt: You are not in the housing market there?
Mr. Willmot: I'm saying that I'm not familiar with it, but, again, I can provide details about it if you wish.
The Acting Chair: Maybe they can confirm if they have any housing lending programs in the Arctic.
We've come to the end of our time, gentlemen. Thank you very much on behalf of all of the senators for your time here, your testimony and your wisdom. We deeply appreciate it. One of your competitors used to have a television commercial about frontier banking and they'd be giving money out of the back of a train.
Mr. Willmot: I remember that day.
The Acting Chair: Even though you've been at this for a while, we get the feeling that we're at some kind of frontier. You're there every day, and we thank you for that. We're adjourned.
(The committee adjourned.)